Introduction

Multinational Corporations (MNCs) are large, politically influential and autonomous

entities that can conduct operations from separate countries. MNCs within the
international system are economically influential and larger than some national
economies. MNCs can exert influence that approaches the level of States or even
surpassing it.
Globalization and outsourcing has for the past two decades resulted in the development of
complex supply networks. These are often led by multinational companies. These
developments have inflicted less legal obligations on parent companies and instead turned
to suppliers that often have weak or weakly enforced regulation. Crimes committed by
multinational companies in practice involve relations with several actors. It includes the
MNC itself which could consist of several entities around the world, the plaintiffs (often
the victims), the host State and furthermore the home States of the MNCs. Thus
jurisdictional concerns arise when the MNC commits violations in a host State.
To deal with such implications and corporate accountability, international law as well as
domestic law provides for remedies. Supplementary to these are regional bodies and
instruments that offer voluntary policies and mechanisms. State responsibility can be
placed in the domicile of the MNC or the host State, the feasibility of such an inclination
will be discussed throughout the course of this project. It is possible that the future could
produce an option whereby corporate liability could be asserted directly under
international law, however at present such an option does not exist. In addition, there is no
formal corporate code of conduct or any other multilateral agreement which could hold
these companies responsible for their wrongdoings. Voluntary instruments are also
important means to promote accountability since corporations can adapt the norms to their
individual corporate structure. Thus, the focus is now on other initiatives, such as the
voluntary corporate codes of conduct. However, implementing and monitoring of these

codes of conduct has proved difficult.1 This project will seek to probe into all such
measures, voluntary or binding, domestic or international which would in some form or
the other constitute a code of conduct for multinational enterprises.

Objectives
To understand the meaning of the term multinational corporation.
To analyze whether MNCs have international legal personality.
To study the evolution and development of the corporate code of conduct for
MNCs.
To enumerate and study the various obligations imposed on MNCs under
international investment law.
To highlight various voluntary measures taken up by MNCs in the light of
corporate social responsibility.
To provide meaningful suggestions for the formulation of an internationally
binding corporate code of conduct for MNCs vis--vis international investment
law.

Research Methodology
This project report is an analytical and descriptive study on

. Secondary sources

have been referred to and electronic sources have been used at large to gather
information about the topic.
1 ANDREW CRANE, ABAGAIL MCWILLIAMS, DIRK MATTEN, JEREMY MOON, &
DONALD S. SIEGEL, THE OXFORD HANDBOOK OF CORPORATE SOCIAL
RESPONSIBILITY, 377 (2008).
Page | 1

Books and other references as guided by the faculty of Trade & Investment Law have
been useful in giving this project its basic structure and details. Websites, article and
dictionaries have also been used.
Footnotes have been provided wherever needed to acknowledge the source of
information.

Multinational Corporations Meaning and

International Legal Personality
What is a Multinational Corporation?

Generally speaking a multinational corporation refers to a corporate entity that has

business operations worldwide. According to the Draft UN Code of Conduct on
Transnational Corporations of 1976, an MNC can be defined as a corporation that has
affiliated business operations in more than two countries.2 The terms multinational and
transnational corporations as well as multinational enterprises (MNEs) have been used
interchangeably in different international instruments and scholarly works.3 In addition to
2 Section 1(a), Draft UN Code of Conduct on Transnational Corporations, 1976.
3 See Part I, Section 3 of the OECD Guidelines for Multinational Enterprises, 1999; See also
Section 1(a) Draft UN Code of Conduct on Transnational Corporations, 1976; United Nations
Economic and Social Council, Sub-Commission on the Promotion and Protection of Human
Page | 2

global business operations, there is a twofold criterion to determine whether a corporation

is an MNC or not. First, there should be a parent-subsidiary relationship in terms of
existence of a parent company at a particular place and its offshoot subsidiaries in other
countries. Secondly, effective control of such parent company over its subsidiaries is a
trademark characteristic of MNCs. Thus, a vital factor to the definition is the exercise of
control, as opposed to a financial stake in a foreign venture. The level of control enables
co-ordination among the business structure, instead of being composed of a network of
independent entities.4

Do MNCs Possess International Legal Personality?

Corporations are, of course, subjects of law and have a legal personality within the
internal legal order of the country where they are registered. But, can they also possess
international legal personality? A code of conduct for MNCs entails accountability on the
part of such corporations for their acts and omissions. Such accountability is dependent on
the conferment of international legal personality on MNCs. This is to say that an MNC
can be held accountable for its wrong-doings only when it possesses international legal
personality.
The proposition that corporations should be granted international legal personality is not a
novel one. By the early 1950s, some writers had already begun exploring the role of
corporations as international legal actors.5 The rise of MNCs was seen by many States as a
serious threat to their national sovereignty, especially with respect to control over their
Rights, Norms on the Responsibilities of Transnational Corporations and other Business
Enterprises with Regard to Human Rights, UN Doc., E/CN.4/Sub.2/2003/12/Rev.2.
4 Beth Stephens, The Amorality of Profit: Transnational Corporations and Human Rights,
BERKELEY J. INTL L., Vol. 20, 47 (2002).
5ARMAND DE MESTRAL & CELINE LEVESQUE, IMPROVING INTERNATIONAL
INVESTMENT AGREEMENTS, 181 (2013).
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natural resources. In this context scholars began to discuss ways which would be best to
control the growing power of MNCs. One method envisaged was the elaboration of
different codes of conduct imposing non-binding obligations on corporations investing
abroad.6 Not surprisingly, the majority of scholars strongly rejected the possibility of
recognizing corporations as subjects of international law.
However, in the Reparations Case7 three requirements were laid down so as to determine
whether an entity possesses international legal personality: (i) The said entity should be a
subject matter of international law; (ii) The entity must possesses certain rights and
obligations under international law; and (iii) The entity must have a mechanism to protect
its rights as conferred by international law. The analytical framework developed by the
ICJ in this case has now been endorsed for all entities. The fact that an entity has been
granted substantive rights in a treaty as well as a direct right of action has been used as
evidence that it possesses international legal personality. There are two circumstances in
which MNCs possess both substantive rights and the ability to bring a claim on the basis
of those rights before an international tribunal. First, state contracts are often governed by
international law and typically contain an arbitration clause. According to the TexacoCalasiatic8 arbitral tribunal the combination of substantive and procedural rights found in
such contracts, which are the product of direct negotiation between an investor and the
host-state for the purpose of undertaking a specific project, is an indication that
corporations possess international legal personality. Investors also benefit from this
combination of substantive and procedural rights under most modern international
investment agreements (IIAs). Under such treaties, a State typically gives its consent to
arbitration in advance to all investors from the other contracting states that meet the
6 Ibid.
7 Reparations for Injuries Suffered in the Service of the United Nations, Advisory Opinion
(1947) ICJ Reports 174.
8 Texaco Overseas Petroleum Co. & California Asiatic Oil Co. v. Libyan Arab Republic,
Award (January 19, 1977) ILR, 53, 1977.
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applicable standing requirements.9 This amounts to granting these investors international

legal personality for the purpose of the treaty.10 Consequently, a code of conduct and
MNC accountability acquires legitimacy based on such international legal personality.

Growth of Corporate Code of Conduct for

MNCs
The development of a corporate code of conduct for MNCs is fairly recent. For the sake of
convenience, the evolution of the code can be studied in four phases. However, no
specific multilateral treaty or agreement on investment was formulated in any of these
phases. Thus, one has to rely on voluntary guidelines, soft law norms or judicial decisions
to identify the areas where corporate accountability exists.

Phase 1: Phase of Suspicion

In the late 1960s and early 1970s, developing countries looked at MNCs with suspicion.
These corporations, in many developing countries opinion, were instrumental in
undermining the sovereignty of the states in which they operated. Many developing
nations especially those of Latin America were of the view that MNCs kept the host-state
and its peripheral states in a state of continuous economic dependence. The formulation of
the New International Economic Order (NIEO) in 1976 further strengthened this belief.
The developing countries associated with NIEO were satisfied that they had achieved
9 See Article 1116 & Article 1117, North American Free Trade Agreement Between the
Government of Canada, the Government of Mexico and the Government of United States,
1994.
10 ARMAND DE MESTRAL & CELINE LEVESQUE, IMPROVING INTERNATIONAL
INVESTMENT AGREEMENTS, 184 (2013).
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sufficient cohesion and that they had sufficient resources to come up with regulations for
these powerful corporations. All these events culminated into the formulation of the Draft
Code for Transnational Corporations by the United Nations Commission on Transnational
Corporations in 1976. However, this Code was never formally accepted.

Phase 2: Phase of Market Liberalization

By the early 1990s, with the disintegration of the Soviet Union, hostility towards MNCs
decreased significantly as developing countries now began to fight for limited foreign
resources. In a liberalized market, foreign investment suddenly became of vital
importance to developing countries. The World Bank was of the view that though
liberalization was at its peak, the international investment market was not ripe for a
binding code of conduct for MNCs. And thus, World Bank came up with its Guidelines on
Foreign Investment in 1992 which were non-binding. The OECD, however, took the
forefront and started drafting the Multilateral Agreement on Investment (MAI) in 1995.
MAI provided numerous relaxations to MNCs and foreign investment. However, the draft
MAI failed to put forth the obligations and responsibilities of MNCs and was considered
by many to be a biased instrument.

Phase 3: Entry of NGOs

All at once there was sudden discontentment with the system. As disenchantment with
market liberalization and globalization peaked, the draft MAI was attacked by a number
of NGOs that were of the opinion that the instrument was biased to the cause of MNCs.
NGOs believed that the MAI had failed completely to take into consideration the negative
impacts of such corporations especially with regards to the environment and the cause of
human rights. In light of such protests against the MAI, governments soon withdrew their
support from MAI. Thus, the MAI was discarded.

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 Phase 4: Entry of WTO

The developing nations now pinned their hopes on the World Trade Organization and
urged for a non-biased, WTO-based instrument which would regulate the business and
workings of MNCs. The issue was sought to be taken for consideration at the Cancun
Ministerial Meeting in 2003. However, the issue of investment was never considered at
the said meeting. Deliberations continue for a WTO-based multilateral agreement for a
code of conduct for MNCs. However, such a multilateral agreement has not been
formulated till date.

Corporate Code of Conduct for MNCs

Certain obligations have been recognized and established internationally which form the
corporate code of conduct for MNCs. These have been discussed below.

Obligation of Non-Interference in Domestic Affairs

Under this obligation, MNCs shall not interfere in the domestic political affairs of the
host-state. Furthermore, they shall not influence their home-state to interfere on their
behalf in the political activities of the host-state. They are also under the obligation to
respect the sovereignty of the host-state.11 This obligation of non-interference can be
traced to the United Nations Declaration on Friendly Relations Between Nations, 1961.
The need for non-interference is based on multiple considerations. Some developing
countries are of the opinion that MNCs are nothing but proxies of their home-state that
operate in the host-state so as to ensure there is a pliant government or a pro-business
government which shall cater to all its needs and requirements. Some countries believe
11 Voon, T., Multinational Enterprises and State Sovereignty Under International Law,
ADELAIDE LAW REVIEW, Vol. 21, 219 (1999).
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that MNCs interfere in the political activities of the host-state on a continuous basis which
is detrimental to the latter. On the other hand, some of the developing nations believe that
MNCs associate with the local ruling elites of the host-state and see to it that the same
elites stay in circulation thereby repressing other political factions. The often cited
instance is the overthrow of the Government of Allende in Chile, which had been
democratically elected, by a coup engineered, it is alleged, by foreign business groups
with the covert support of a foreign government.12 For all such reasons, it seems justified
to impose an obligation of non interference on MNCs.
Many instruments now include a prohibition on the involvement of MNCs in the politics
of the host-state. The statements contained in them, however, are only soft law
requirements. But, the issue does arise in modern law as to whether there is more direct
responsibility in circumstances in which there is involvement of an MNC or home-State
officers for effecting coups or bringing about changes in the host-states government.
Such changes would favour the MNCs continued activity or would favour the homestates policies and goals.13
Non-interference as a principle was recognized in the case of U.S. v. Nicargua14 whereby
the International Court of Justice (ICJ) rejected the U.S. argument that suggested that the
growth of communism in Nicargua was a matter of concern for the adjoining States. The
ICJ held that it was not good for a country to dictate the kind of economic system that
another country should possess and thus it supported the obligation of non-interference
amongst States. The Court also stated that this norm embodied a prohibition against any
intervention bearing on matters upon which a state is permitted, by virtue of its
sovereignty, to decide freely. Such matters included the choice of a political, economic,
social and cultural system, and the formulation of foreign policy.
12 M. SORNARAJAH, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT, 174
(2011).
13 Ibid.
14 U.S. v. Nicargua, 1986 ICJ 14.
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Though such an obligation is internationally recognized, what is debatable is the degree of

interference that is permissible ie. the extent of interference in a countrys domestic affairs
that can be allowed. An apt illustration is that of the Iraq War. Many theorists are of the
view that the change of regime in Iraq was not because the U.S. government was
threatened by the Iraqi government but because of Iraqs oil resources which gives a
business motive to the war.15 Thus, the extent to which a regime change in a country is
permissible for business or for investment is moot. Thus, the extent of interference
permissible should be determined internationally in order for such obligation to acquire its
true purpose.

Obligations Relating to Human Rights

MNCs are not to support a regime that violates human rights. In addition, MNCs are
obligated to comply with international labour standards. ILO has come up with a number
of instruments as far as labour standards are concerned. However, human rights
enforcement is always bleak as certain jurisdictional matters crop up which make it
difficult for courts to try instances involving human right infringement.
A. U.S. Alien Torts Claims Act

A brilliant piece of legislation is the U.S. Alien Torts Claims Act (ATCA) which is a
two hundred year old legislation that has been used to bring MNCs to the doors of the
court for human rights violation. The US Alien Tort Claims Act renders vindication to
foreign claimants of gross human rights violations committed by multinational
corporations. The Act was first employed on State defendants yet US courts now
permit claims against private corporations. This development has brought serious
allegations against several of the worlds largest corporations. Some of the allegations
15 M. SORNARAJAH, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT, 175
(2011).
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concern severe infringements of human rights such as mass murder, rape and
genocide, while other cases address freedom of speech and expression. The Act
provides civil remedies and distinguishes from legislation in other parts of the world.
There are important procedural hurdles to impose litigation, nonetheless the Act has
instigated a debate on the risks involved with transnational corporate activities. While
several cases have been dismissed and other settled, corporate aiding and abetting is
the most prosecuted field of the litigation under the Act.
The first landmark case where the ATCA was applied was the 1980 case of Filartaga
v. Pea-Irala,16 prior to which the use of ATCA was not common in human rights
lawsuits. During the 1980s most of the suits concerned foreign nationals suing their
own government thus entailing State action. By the 1990s the litigation expanded to
private actors to include suits against MNCs alleged of aiding and abetting in human
rights violations by foreign States. It was not until Kadic v. Karadzic 17 that courts
found private actors liable for human rights violations. After this decision corporate
cases began to emerge. Doe v. Unocal Corp.18 was the first lawsuit concerning a
private corporation.
Unocal was a U.S. MNC that was alleged to have participated actively in the mass
killing and torture of aboriginals along with the Burmese Government while it was
constructing a pipeline in Burma. The court was of the opinion that it had sufficient
jurisdiction to try the matter as the parent company was within the territorial limits of
the court. Also, the court held that where the parent company benefited from the
misdeeds of its subsidiaries in the host-state, they should be held accountable for such
misdeeds.
Sosa v. Alvarez-Machain 19 is the only US Supreme Court decision to this date. The
case was decided in favor of the defendant, but the Sosa case has been cited by both
16 Filartaga v Pea-Irala, 630 F 2d 876 (2d Cir 1980).
17 Kadic v. Karadzic, 70 F.3d 232 (2d Cir.1995).
18 Doe v Unocal Corp., 110 F Supp. 2d 1294 (C.D. Cal. 2000).
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sides to support the actionable claims for violations of the law of nations. It holds that
private parties, such as corporations, can be liable under the ATCA.
Another claim under the ATCA was that of Jewish plaintiffs against IBM Corporation
and other corporations. These plaintiffs alleged that IBM and others had passively
participated in the mass killing and torture of Jews during the Holocaust by supplying
the Nazi government with certain technologies.20 The Court agreed to entertain the
case based on the understanding that corporations that had benefitted from the
Holocaust were to be held accountable for their misdeeds. Moreover, in the recent
years the Courts have been actively recognizing the concept of universal
jurisdiction.21 Thus, the Courts are now of the opinion that there are certain offences
so gross and violent, that they should be allowed to be tried anywhere. Thus, the
concept of universal jurisdiction seeks to put an end to the jurisdictional issue that
crops up when enforcement of human rights is at stake.
The number of court cases heard is a small fraction when compared to the number of
lawsuits filed. This is due to the difficulty in assigning responsibility to corporations
when they rarely commit direct acts of human rights abuse. As a result the most
important question that has developed under the ATCA is whether corporations can be
held accountable for aiding and abetting (complicity) in human rights abuses. It has
proved difficult to gain personal jurisdiction over individual human rights violators yet
legal action on corporations based in the US has resulted in more successful outcomes
than in other countries.22
19 Sosa v. Alvarez-Machain, 542 U.S. 692, 724 (2004).
20 M. SORNARAJAH, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT, 177
(2011).
21 Pinochets Case, [1999] 2 WLR 827; Filartaga v Pea-Irala, 630 F 2d 876 (2d Cir 1980).
22 Martha Lovejoy, From Aiding Pirates to Aiding Human Rights Abusers: Translating the
Eighteenth Century Paradigm of the Law of Nations for the Alien Tort Statute, YALE HUM.
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B. Corporate Complicity

The attribution of corporate complicity is a rather complex task. MNCs acting as

accomplices to violations committed by a host State can be responsible to abuses
under international law. Three categories have been identified by legal commentators:
direct complicity, indirect complicity and mere presence in the country coupled with
complicity through silence or inaction.23 Corporations can be responsible for the
committed abuses by facilitation or directly participate in the abuses in conjunction
with government agents. Furthermore, even if the corporation is not involved in the
violations, it can benefit from the failure of governmental protection of human rights.24
To establish whether a corporation has acted in complicity, a few factors need to be
considered. The corporation must have acted with intent and/or knowledge or
recklessness, and the corporation must have contributed in a direct and material way
to the crime.25
Recently there have been several consolidated actions to redress human rights
violations committed in South Africa under the apartheid regime. Plaintiffs include
residents that were injured from the year 1948 to 1994 alleging violations by MNCs
that conducted business in the region.26 The district court however, declined to apply
the Convention on Apartheid since the US had not ratified it at the time and other
RTS. & DEV. L.J.,Vol. 12, 246 (2009).
23Ann Marie McLoughlin, INTERNATIONAL TREND OF MULTINATIONAL
CORPORATE ACCOUNTABILITY FOR HUMAN RIGHTS ABUSES AND THE ROLE OF
THE UNITED STATES, OHIO N.U. L. REV., Vol. 33, 158 (2007).
24 Ibid.
25 Ibid.
26 In Re S. African Apartheid Litig., 346 F. Supp. 2d 538, 550; Khulumani v. Barclay Nat'l
Bank, Ltd., 504 F.3d 254 (2d Cir. 2007).
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Conventions concerning criminal liability were found not applicable to civil remedies.
Furthermore, the judges were split on the opinion of aiding and abetting. Thus these
matters, to date, remain unresolved.
Nonetheless, this doctrine is also universally recognized under customary international
law and has been sustained since the Nuremberg 27 trials. Courts have to a great
degree reasoned and debated on the doctrine. Several courts have held that aiding and
abetting is appropriate under the ATCA, yet the question still remains whether
international law or federal common law provides for the appropriate standard.28 There
is, at this present time, no consensus on this issue.

Obligations Relating to the Environment

As far as regulation of MNC conduct is concerned in relation to the environment, we find,

again, that there are only soft law norms or guidelines which are not sufficient checks on
the activities of MNCs. Furthermore, the environmental treaty regime prevalent
internationally (Stockholm/Rio) cannot be applied to MNCs as (i) They are non-state
actors and (ii) For such a regime to apply to MNCs, the country in which they operate
would first have to incorporate the said law at the local levels by means of domestic
legislation and then bring such MNCs under the purview of the said regime via. local
legislation.29 Thus, we see that there is a shortage of environmental regulations that would
hold MNCs accountable for their misconduct.
27 The Nurnberg Trial, 6 F.R.D. 69, 76 (1946).
28 Nilay Vora, Federal Common Law and Alien Tort Statute Litigation: Why Federal Common
Law Can (and Should) Provide Aiding and Abetting Liability, HARV. INT'L L.J., Vol. 50, 195
(2009).
29 M. SORNARAJAH, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT, 180
(2011).
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In this background, there are various instances which further show that the international
courts have been reluctant to check MNCs activities which are detrimental to the
environment. One such tragic event was the Bhopal Gas Leak Tragedy where the U.S.
Court refused to entertain a case against the parent company Union Carbide. After a
careful study of the facts of the Bhopal Gas Leak Tragedy, we can conclude that U.S.
MNCs often take advantage of the ill-governance on the part of the host-state and thus
escape rules and regulations, get easy clearances and do not abide by the environmental
norms that they would normally have to follow in their own country. It is shocking how a
Court can fail to hold such an MNC accountable for its misconduct, more so in the
aftermath of tragedy. The second instance is where Westinghouse Corporation (U.S.
MNC) sold a nuclear power plant to the Philippines and the reactor of such power plant
was situated on an earthquake fault-line below a volcano. Further, the designs of the plant
did not conform with the international U.S. standards. Here, the U.S. government
sanctioned the plant without any second thought to MNC liability.
However, not all hope is lost and we see that Courts are now being sympathetic to the
cause of the environment. Thus, the case of Beanal v. Freeport Mcmoran 30 the Court
agreed to entertain a case against a U.S. MNC in relation to the rights of local Indonesian
people which were affected because of certain mining operations. However, enforcement
of environmental norms and standards is meager on the international front as of today.

Obligation to Promote Economic Development

Almost every multilateral agreement on investment is based on the premise that foreign
investment shall ultimately lead to economic development of the host-state. The UNCTC
Draft Code of 1976 provided that foreign investment can be beneficial for the economic
development of the host-state provided the positive effects of MNCs are harnessed to the
economic goals of the host-state.31 Furthermore, the Preamble of the Draft MAI, 1995 also
assumes that foreign investment is beneficial for the economic goals of the host-state and
30 Beanal v. Freeport Mcmoran, 197 F.3d 161(5th Cir., 11/29/1999).
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what is beneficial must be protected. Thus, such agreements are based on an assumption
that foreign investment will definitely lead to economic development. However, it may
not always be the case. And so, certain concrete efforts have to be made by MNCs to see
to it that they contribute to the social, cultural and economic upliftment of the State in
which they function.32
It is therefore imperative to search for methods of holding MNCs accountable and to
regulate their operations so as to benefit local communities as well as the international
economic system. With respect to the implementation of economic, social, and cultural
rights, the Maastricht Guidelines on Violations of Economic, Social and Cultural Rights
inform that a state is responsible to ensure that transnational corporations do not deprive
individuals of these rights.33 Further, the duty of governments is clearly expressed in the
preamble and first article of the International Covenant on Economic, Social and Cultural
Rights. The Preamble affirms that all parties to the Covenant agree to the principles:
Recognizing that, in accordance with the Universal Declaration of Human
Rights, the ideal of free human beings enjoying freedom from fear and want can
only be achieved if conditions are created whereby everyone may enjoy his
economic, social and cultural rights, as well as his civil and political rights.
Other specific obligations vis--vis economic development include the duty not to engage
in corrupt practices, duty to not engage in restrictive business practices, to abide by
various labour standards and practices, observance of customer protection guidelines of
the host-state etc.

31 Preamble, Draft UN Code of Conduct on Transnational Corporations, 1976.

32 Claudio Grossman & Daniel D. Bradlow, Are We Being Propelled Towards a People-Centered
Transnational Legal Order?, AMERICAN UNIVERSITY JOURNAL OF INTERNATIONAL LAW &
POLICY 1, Vol. 9, 18 (1993).

33 Maastricht Guidelines on Violations of Economic, Social and Cultural Rights, 1997.

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Also, the capacity of governments to utilize foreign investment for domestic growth is
contingent on the interaction effect of foreign investment with democratic and effective
institutions. Developing countries must first improve their level of domestic institutional
development in order to increase the capacity to negotiate and manage foreign investment
to promote economic growth.34

Corporate Social Responsibility

Globalization has had dramatic effects on developing countries. Prospective investment
and economic growth will continue to have social and environmental impacts. Corporate
Social Responsibility (CSR) is a term applied to describe the role of business in
developing countries and can be viewed together with terms such as business ethics,
corporate citizenship, corporate sustainability or stakeholder management. No general
standard description of the concept is employed. Only recently have corporations initiated
rather noteworthy evidence of CSR in the strategic management and stakeholder social
reporting. The responsibility is often communicated towards employees and stakeholders
affected by the decisions of the company.
The inherent problematic aspect of codes of conduct in the area of CSR is that there is a
broad diversity in the codes. Different standards and verification mechanisms make it hard
to compare corporations, or even appreciate the achievements of the specific code. It also
makes it difficult to interpret whether a code is credible or not, especially for consumers.
While CSR and other voluntary initiatives by MNCs can affect human rights norms, it has
proved that voluntary instruments do not currently benefit the victims of gross violations.
CSR represents the privatisation of human rights regulation as governments are unable
or unwilling to control MNC activity. While private initiatives such as corporate codes of
conduct and voluntary reporting are definitely steps in the right direction,35 and represent a
34 JENNY REBECCA KEHL, FOREIGN INVESTMENT & DOMESTIC DEVELOPMENT
MULTINATIONAL & THE STATE, 131 (2009).
35
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legitimate attempt by the business community to address ethical concerns, they have
serious deficiencies. The primary concern is with the voluntary nature of such practices.
The non-binding nature of such codes means that an organisations performance does not
necessarily correlate with the organisations policy.36 Additionally, the fear is that while
they may be adhered to in economical good times, the voluntary nature of the codes of
conduct will allow them to be the first to go during an economic downturn or times of
international instability. Moreover, the lack of implementation and enforcement
procedures monitored by impartial agencies gives rise to a perception of the codes as
public relations exercises by MNCs. It is of significant concern that self-regulation is
designed to avoid government or international regulation from occurring.37
Many codes of conduct fail to address all of the human and labour rights that are
guaranteed to all of humanity. Many codes volunteer the corporation to adhere to
standards that are mandatory and binding according to international human rights and
labour laws anyway. Enacting a code of conduct that pledges a company not to use
slavery or child labour should not be necessary. MNCs should be abiding by human rights
norms to begin with. However, these non-binding codes of conduct serve as an
acknowledgement by corporations that they are bound by human rights law and that their
activities do affect the enjoyment of human rights within there sphere of influence. This
has caused some corporations great concern as these promises could become difficult to
rescind upon and could create competition between corporations causing them to concede
to external regulation and binding rules.38
36 Bart, Kenneth and Baetz, M., The Relationship Between Mission Statements and Firm
Performance: An Exploratory Study, JOURNAL OF MANAGEMENT STUDIES, Vol. 33, 823
(1998).
37CUNNIGHAM, N. & REES, J., INDUSTRY SELF-REGULATION: AN INSTITUTIONAL
PERSPECTIVE, 370 (1997).
38 THUSING ROLF, Codes of Conduct: A Growing Concern for Multinational Enterprises,
BULLETIN OF COMPARATIVE LABOUR RELATIONS: MULTINATIONAL ENTERPRISES AND

Page | 17

Certain Judicial Decisions Regarding MNC

Accountability
The Nuremburg Tribunal perhaps best substantiates this notion of applying general rules
of international law to individuals as well as corporations. The Nuremburg Charter
permitted the prosecution of a group or organisation and allowed the tribunal to declare
that an entity is a criminal organisation. The Tribunal became a foundation of human
rights law in stating:
That international law imposes duties and liabilities upon individuals as well
as upon States has long been recognized. ... Crimes against international law are
committed by men, not by abstract entities, and only by punishing individuals
who commit such crimes can the provisions of international law be enforced.39
In United States v. Flick,40 United States v. Krauch41 and United States v. Krupp,42 the
heads of major German corporations were prosecuted for war crimes and crimes against
humanity. While the prosecutions were against individuals, the Tribunal consistently
deliberated in terms of corporate liability. The language used makes it expressly clear that
that the court considered that the corporations had violated international law. These cases
also confirmed that corporations could have the necessary mens rea for the commission of
crimes. One of the first cases in the WWII trials was the Zyklon B Case,43 where the
industrialists were found guilty because they knew what the purpose of the gas was.
THE SOCIAL CHALLENGES OF THE XXIST CENTURY, 95 (2000).

39 Judgment of the International Military Tribunal for the Trial of German Major War Criminals. 6
F.R.D. 69, 76 (1946).

40 United States v. Flick, Council Law No. 10, 1216 (1949).

41 United States v. Krauch et al. (Case VI), Trials of War Criminals, Vol. 8, 1169 (1952).
42 United States v. Krupp Available
http://www.ess.uwe.ac.uk/genocide/cntrl10_trials.htm#Krupp
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In Iwanowa v. Ford Motor Co.44 it was observed that no logical reason exists for allowing
private individuals and corporations to escape liability for universally condemned
violations of international law merely because they were not acting under color of law.
Further in Eastman Kodak Co. v. Kavlin45 the Court agreed that subject matter
jurisdiction existed in an ATCA action against a Bolivian corporation.
The Courts of Great Britain have begun to relax forum non conveniens rules in order to
allow for plaintiffs to bring cases against British corporations in England rather than in the
place where the violation took place.46 This has opened the door for numerous cases
concerning health and labour standards.47

Conclusion
Accountability of multinational corporations can take two directions. The international
community can rely on countries to regulate the conduct of MNCs on State level, or
international law can directly impose liability on the corporations. Both levels can
promote voluntary approaches and corporate self-regulation or provide a binding legal
framework. Consensus on the international level is nevertheless hard to obtain. Some
international measures have failed or fallen short due to lack of consensus while selfregulation has prevailed. The first international level currently does not codify any
43 The Zyklon B Case (Trial of Bruno Tesch and Two Others), 1 Law Reports of Trials of War
Criminals 93 (Brit. Mil. Ct. 1946).
44 Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424, 445 (D.N.J. 1999)
45 Eastman Kodak Co. v. Kavlin, 978 F. Supp. 1078, 1090-95 (S.D. Fla. 1997)
46 Sithole & Others v. Thor Chemical Holdings Ltd. and Another, TLR 15 February 1999
47 Ngcobo and Others v. Thor Chemical Holdings Ltd., TLR 10 November 1995; Sithole & Others v.
Thor Chemical Holdings Ltd. and Another, TLR 15 February 1999; Connelly v. RTZ [1996] 2 WLR 251;
Lubbe & Others v. Cape PLC; Afrika and 1539 Others v. Cape PLC [1999] A No. 40; Mphahlele & 336
Others v. Cape PLC [1999] M No. 146.

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consistent legal pattern. It merely promotes principled corporate conduct by flexible

standards. If the State level is chosen to permit domestic law and regulations to govern
and control the implication of multinational enterprises, it is highly likely that there will
be less conformity between States, and MNCs will struggle to recognize the scope of
responsibility.
The discussion of accountability mainly revolves around the extent of corporate liability,
how responsibility can and should be encouraged. A question of interest is the preference
of how to confront corporate misconduct, whether a legal and hence binding resolution is
favorable, or rather self-regulation and voluntary measures are beneficial to the corporate
structure. However since corporate structures may vary to such a great extent, selfregulation is essential. The emerging corporate structures, with outsourcing and the
utilization of sub-contractors and supply chains, has also altered the approach of corporate
accountability. It is also reasonable to conclude that guidelines and recommendations
concerning multinational conduct will soon become binding and standardized in corporate
practice. Codes of conduct and CSR may have a vital impact and be of legal importance if
given consideration by implementation in contracts or in marketing efforts by companies.
Corporate accountability is very much at a formative stage of development. The prospects
of promoting good corporate conduct are subject to how States choose to govern corporate
responsibility and corporations choose to apply self-regulation. The international level can
promote uniform corporate standards, which is essential to assert good corporate conduct.
Thus both an approach on the international level as well as through the act of States is
required in order to battle the impunity of MNCs. Both levels have positive and negative
aspects. The distinction between legally binding and voluntary measures should not be
strictly drawn since self-regulation and codes of conduct are essential to promote good
corporate governance and particularly in the long term legal remedies may be invoked
from these same codes and practices.

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